Live From CTIA: Operators Look to Respond to Challenging Market Dynamics with New Sources of Differentiation & Aggressive Posturing

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Image from: Wireless and Mobile News

This week carriers, OEMs and wireless ecosystem participants of all shapes and sizes descended on New Orleans for the annual CTIA show. And in a nice quirk of timing – aided by the show’s smart decision to move the show dates back a month and a half – CTIA coincided with the last of the big 4 carriers reporting Q1 earnings. After looking at both these earnings releases and Compete’s own metrics measuring online prospect volume (a measure of consumer shopping activity) and online postpaid gross adds & customer upgrades (measures of operator sales activity), one thing comes through: the wireless industry – which according to CTIA saw revenues triple between 2000 and 2010 – has hit a rough patch. Consider, compared to Q4 2011:

  • Q1 2012 big 4 prospect traffic has declined 21%
  • Q1 2012 big 4 postpaid gross adds have declined 38%
  • Q1 2012 big 4 customer upgrades have declined 55%

And that’s just the story in Q1. If we take a step back, the industry has been slowly declining (as measured by aggregate prospect traffic) since Thanksgiving 2010. If not for not one, but two, significant iPhone launches in 2011 – the February iPhone 4 launch at Verizon Wireless (which predictably drove significant online and offline sales for VZW, and less predictably also drove a surge of AT&T sales, by spurring aggressive counter-marketing tactics), and the October multi-carrier iPhone 4S launch – the industry’s slow decline since Q4 2010 would have been more dramatic, and its effects felt much earlier.

So how are operators responding? This week a couple themes emerged. In the coming weeks and months Compete will be exploring in more detail:

  • A Quest for Differentiation. With every smartphone but the iPhone morphing into seemingly identical 4 inch panes of glass, it is clear that operators are looking for sources of non-device differentiation. Two of the bigger announcements this week (which is faint praise, as the show was noticeably short on big announcements) reflect this trend. Sprint made a big deal about its Guardian Service, which is designed to increase consumer trust, drive sales of family locator services and give the company something to talk about beyond network speed and price. Similarly, AT&T made a big deal about its Digital Home initiative, which will put AT&T Mobility at the center of a whole range of home management and security solutions. From a pure customer acquisition perspective, it’s doubtful that either of these will amount to much. But they are easier to implement than …
  • Improving Carrier Economics. Even as consumers migrate en mass from feature phones to smartphones and adopt secondary devices like tablets and eReaders, operators are feeling the heat from investors for deteriorating margins. High device subsidies (especially with the iPhone) are killing carrier economics, and for the first time carriers have begun speaking about this. Privately AT&T, Sprint and Verizon Wireless have talked about portfolio “imbalance”; publically T-Mobile is highlighting its lower per-phone subsidy levels and the huge opportunity for SIM-only subscriptions. The iPhone remains the most powerful customer acquisition tool in the industry – nearly two years after its launch the iPhone 4 remains one of the top phones added to online customer shopping carts – but the industry’s dependence on Apple is a dangerous trend and is leading to carriers …
  • Taking The Gloves Off. Sprint (with “Don’t Accept Their Limits”) and Nokia (with “Smartphone Beta Test”) have both recently made not-so-veiled jabs at AT&T and the iPhone, but the challenges highlighted above suggest that we can expect even more aggressive competitive tactics. T-Mobile has just made the most aggressive move yet, re-invigorated by its commitment as a challenger brand. While sharing the stage with AT&T’s Ralph de la Vega, T-Mobile CEO Phillip Humm unveiled the latest “No More Nice Girl” commercial, which compares the iPhone experience on AT&T to a sputtering and wheezing motorbike. de la Vega wasn’t pleased. The crowd loved it.

It’s fitting that an industry looking to regain its mojo after some setbacks chose New Orleans for its annual convention. After suffering through successive waves of human and natural disasters for much of the past decade, the New Orleans I saw this week was as vibrant and thriving as ever. For both wireless and the city, laissez les bon temps rouler.

About Christopher Collins:
Chris Collins leads the Technology & Entertainment Practice for Millward Brown Digital. In this role, Chris provides data-driven insights and strategic guidance to leading retailers, telecommunications carriers, consumer electronics manufacturers, and their marketing partners. Prior to Compete, Chris was a senior member of the Consumer Wireless team at Yankee Group Research and worked as a management consultant for Monitor Group and IBM Business Services. Connect with Chris on LinkedIn.